Senator HILL. When would you want to file your supplemental statement?

Mr. SMETHURST. I could get it in by Monday or Tuesday.

Senator HILL. That will be all right; we will be glad to have you do so.

(Supplemental statement filed with the committee by Mr. Smethurst is as follows:)

SUPPLEMENTAL STATEMENT OF R. S. SMETHURST, IN OPPOSITION TO PROPOSED AMENDMENTS TO WALSH-HEALEY PUBLIC CONTRACTS ACT MAY 19, 1939

Mr. A. C. Moore, who appeared before this committee on behalf of the National Association of Manufacturers, outlined the position of this association toward the amendments now pending. I will not duplicate his testimony by repeating the attitude of the association. It is my desire to supplement Mr. Moore's statement, first, by analyzing in greater detail the amendments proposed in S. 1032 and our objections thereto; second, by discussing certain problems which have arisen in administration of the Walsh-Healey Act, and third the nature of and reason for our specific recommendations for additional amendments to the present law.

SUMMARY OF WALSH BILL

As I have analyzed the Walsh bill (S. 1032) it seems to me it would accomplish five major changes in the Walsh-Healey Act:

(1) Extend the act to include contracts for the purchase of supplies which exceed $2,000 in amount in lieu of $10,000 as now provided.

(2) Would extend provisions of the Walsh-Healey Act to include any "subcontractor" defined to mean "any person who manufactures or furnishes to or for the principal contractor, whether directly or through any middleman or broker, all or any part of the supplies which are required to be manufactured or furnished by the principal contractor" if the subcontract exceed $2,000 in amount.

(3) Would redefine the term "supplies" and bring within the statute contracts for the construction of vessels, equipment (including floating equipment), and services of any form excepting professional.

(4) Would bring the act in partial conformity with the Fair Labor Standards Act of 1938 (a) by incorporating the child-labor standards of that law in lieu of those now set forth in the Walsh-Healey Act, and (b) by eliminating from section 1 of the present law the language prohibiting "deductions on any account" and substituting in lieu thereof a provision that the minimum wages prescribed by the Secretary should include "the reasonable costs, as determined in accordance with administrative regulations, to the employer for furnishing such employee with board, lodging, or other facilities and customarily furnished by such employer to his employees.' This substitute language is taken from section 3 of the Fair Labor Standards Act of 1938.

(5) Would increase the liability of contractors who fail to comply with the minimum wage and overtime requirements by permitting withholding or collection of double any amount found due an employee (where the violation is a second offense) and treble such amount for any subsequent breach or violation.

INCLUSION OF SUBCONTRACTORS

Our first concern is with those provisions of the Walsh bill by which subcontractors would be subjected to the requirements of the Walsh-Healey Act. The term "subcontractor" is defined to include any person "who manufactures or furnishes to or for the principal contractor, whether directly or through any middleman or broker, all or any part of the supplies which are required to be manufactured or furnished by the principal contractor pursuant to the Government contract.'

According to section 1 of the Walsh bill it appears that all principal contractors, obtaining contracts in excess of $2,000, will be required to stipulate that their subcontractors will observe the minimum wage rates prescribed by the Secretary of Labor, will not permit any employees engaged in performance of the subcontract to work in excess of 8 hours in any day or 40 hours in any week, that no person will be employed in violation of the child-labor standards, that no part of the subcontract will be performed under working conditions which are insanitary, hazardous or dangerous to the health or safety of the employees, and finally that the

subcontractor "will comply with all the terms and conditions of this act, including any and all rules and regulations in force and effect."

It is further provided in section 2 of the bill that failure to comply with any of these stipulations "shall render the party responsible therefor" liable for liquidated damages in the sum of $10 a day for each person under 16 years of age employed in execution of the contract or subcontract and liable further for any underpayment of wages due to employees engaged in the performance of such contract or subcontract. As indicated above, this liability would be doubled in case of a second violation and trebled for any subsequent breach. In addition, failure of the subcontractor to comply with any of these stipulations would permit the agency with whom the contract is made to cancel it, make open market purchases, or enter into other contracts in order to complete the original contract, and to charge any additional cost incurred to the original (principal) contractor.

Before discussing our objections to this amendment, there are certain ambiguities which make it impossible to ascertain its full import. First, it is not entirely clear from the definition of "subcontractor" whether it includes only manufacturers or suppliers of some part of the total quantity of supplies actually called for in the contract between the principal contractor and the governmental agency. It seems to me entirely possible that the definition could be construed to include any person who furnished to the principal contractor any materials, parts or supplies to be further manufactured or assembled by the principal contractor before delivered pursuant to the contract. The language "all or any part of the supplies" certainly justifies such apprehension, even though it is my understanding from the statements made by Mr. Walling that this was not intended by the amendment. Unless clarified the term "subcontract" would have unlimited application. It would not be confined to manufacturers or suppliers having a direct contractual relationship with the principal contractor. It would include such manufacturers or sources of supply who provide or furnish any part of the supplies "whether directly or through any middleman or broker." Such a broad amendment would be extremely unfortunate and impose an impossible burden upon manufacturers desiring to bid on Government contracts.

This burden imposed upon contractors and its adverse effect upon Government procurement agencies was expressly recognized by the Solicitor of the Department of Labor during his appearance before this committee in the Seventy-fifth Congress in connection with a similar bill then before your committee. Mr. Reilly's testimony, beginning on page 19 of the hearings, made the distinction between the obligations of the principal contractor, and his subcontractors, when the contract involved public works or construction as distinguished from the manufacture or furnishing of supplies. He called attention to the distinction between "the close relationship which exists in a public works contract between the general contractor and the subcontractor on the site of the work, and the remote relationship between a manufacturer who has been awarded a Government supply contract and the intermediate processors and producers who furnish him the materials to perform the contract."

With respect to this latter class of contracts, Mr. Reilly continued:

"So far as supplies in general are concerned, however, I think it would impair the ability of the procurement agencies of the Government to secure bids if a bidder were compelled to run the risk of vouching for the conduct of all his suppliers or even where compelled to secure certificates of compliance from all of them."

This testimony illustrates and confirms the objections we have toward including "subcontractors" as now provided in the Walsh bill.

There is, however, another ambiguity arising from the definition of subcontractor. This definition provides that the act shall apply "only to such subcontractors whose contracts exceed a total of $2,000." While I presume this language was intended to refer to subcontractors whose single subcontract equaled $2,000 or more, that would not necessarily follow from the language employed. This provision could also be construed so that any subcontractor would be included if at any time he obtained a series of subcontracts the total of which might exceed $2,000. In other words the proviso does not clearly specify that the subcontractor would be included only when his single subcontract exceeds $2,000. Nor does it necessarily follow that the subcontract to be included must be one arising under a contract entered into by a single principal contractor. In other words a subcontractor supplying two principal contractors with materials would presumably be subject to the act even though neither subcontract in itself equaled or exceeded a value of $2,000. Again it is my understanding from Mr. Walling's testimony that no such result was contemplated and I hope this language may be clarified.

Finally, in section 2 of the bill it is provided that any breach or violation of the stipulations required to be included in any contract "shall render the party responsible therefor" liable for the numerous penalties thereafter provided. While it is not entirely clear, we have construed this language to mean "legal responsibility" and since the principal contractor is the only party with whom the Government has contractual relations, it seems entirely clear to us that section 2 places responsibility upon the principal contractor for any breach or violation committed by any of his subcontractors. If this is not the intention, this language should also be clarified.

As Mr. Moore indicated in his testimony, we are unalterably opposed to an amendment imposing upon a manufacturer responsibility for any breach or violation committed by his subcontractors when performing work incidental to a Government contract. This opposition is based upon legal as well as practical considerations. Efforts to impose such liability have been attempted in the past, not only when the Walsh-Healey Act was first before this committee for consideration, but also on subsequent occasions when proposed in the form of amendment. The proposition places the principal contractor in an extremely unfair position. The act does not provide for, or give the contractor the means for obtaining a definite contractual commitment from a subcontractor by which the latter would bind himself to comply with the stipulations required in the principal contract. In most cases it is extremely doubtful whether the principal contractor could obtain any definite contractual commitment from his subcontractors. Even if obtained, however, the contractor's difficulty would not be alleviated. If during or after performance of the contract the Administrator should discover that a subcontractor failed to comply with the requirements of the act, the penalties could immediately be applied to the principal contractor and without the necessity of resorting to any court for adjudication of the question as to whether an actual violation had been committed by the subcontractor.

If amounts are withheld from the principal contractor, and if the subcontractor denies he has violated stipulations required under the Walsh-Healey Act, the principal contractor would either have to assume the loss or resort to litigation to determine the actual guilt of the subcontractor. Where the subcontractor has refused to enter into any specific agreement to comply with the Walsh-Healey Act, there would of course be no basis for recovery by the principal contractor. I do not see how such a situation could have any other effect than to discourage manufacturers from bidding on Government contracts in the face of the uncertain risks they would be required to assume. There are, however, additional reasons for our opposition to this amendment and these likewise apply to the further amendment contained in the Walsh bill by which principal contracts in excess of $2,000 would be made subject to the Walsh-Healey Act.

Mr. Walling testified before your committee to the effect that these amendments would tremendously increase the number of contracts awarded subject to the requirements of this law. Specifically I believe Mr. Walling stated it would mean an actual increase of 20 times the number of contracts now covered. I believe he stated that the annual number of contracts now included was approximately 5,500, and that these amendments would increase that number to approximately 100,000 contracts each year. Mr. Walling testified to the same effect in hearings recently held before a subcommittee of the House Committee on Appropriations.

From that testimony it appears that during the 2-year period in which the Walsh-Healey Act has been in operation, a total of 12,700 contracts have been handled by the Public Contracts Division. Mr. Walling further testified that of these 12,000 contracts, "4,096 firms received one or more contracts. There were 4,467 additional firms, sources of supply, within the jurisdiction of the WalshHealey Act which should be investigated. Even though firms have repeat contracts we have found it necessary to investigate every contract in order to be sure that there are no violations on each contract, for we have found that violations occur in the same plants on repeat contracts."

From this testimony it also appears that the Public Contracts Division has been able to inspect or police only 4,678 contracts during the 2-year period, thus leaving approximately 8,000 contracts without any examination. Because of this difficulty in keeping a current check on violations, the Public Contracts Division requested an additional appropriation for the next fiscal year.

It is obvious that an increase of 20 times the number of contracts to be awarded subject to the Walsh-Healey Act would greatly increase the administrative task of examination and enforcement. Even to date we have heard numerous complaints from manufacturers performing contracts subject to the act that they are constantly faced with unfair competition from those who agree to comply with

the Walsh-Healey Act and then ignore its provisions in the performance of the contract. In my judgment there is no justification for such a tremendous increase in the number of contracts to be covered by the law if there is no assurance the law will be enforced. It would appear to me far more advisable first to obtain effective enforcement and compliance with respect to contracts now covered before undertaking a job 20 times as great as the one now faced in securing prompt examination of contract performance and immediate detection of any violations being committed. If the coverage is increased and the number of contracts expanded the law would become even more ineffective and penalize further the reputable manufacturers who comply with their contract stipulations.

In addition to what I have already stated, this association has an even more fundamental objection to any further extension of the law at this time. The reasons underlying this objection are the same as those which prompt our recommendation that the provisions of the Walsh-Healey Act should be brought in line with the wage-and-hour standards imposed in the Fair Labor Standards Act of 1938. Before discussing this further, I would like to call to the committee's attention not only the overlapping and conflicting provisions of the Walsh-Healey Act and wage-hour law alone, but in addition may I call your attention to two other statutes dealing with the same subject matter and increasing the confusion of manufacturers dealing with agencies of the Federal Government. I know you are familiar with these but it may be you have not considered their scope from the standpoint of possible conflict with the Walsh-Healey Act and the wage-hour law. First, let me call your attention to the similarity and differences between the Walsh-Healey Act and the Fair Labor Standards Act of 1938. Each of these statutes provides for regulation of minimum wages, maximum hours, and the employment of minors. Amendments to the wage-hour law now pending in the House would extend regulation to prison labor and thus bring the two statutes together with respect to the subjects covered. Here, however, the similarity ends. These laws are entirely different in other respects, and I would call attention specifically (1) to provisions governing minimum wages and the formula provided for their determination; (2) provisions establishing maximum hours of service, and (3) the classes of employees or occupations covered or exempted.

MINIMUM WAGE STANDARDS

Under the Fair Labor Standards Act employers are required now to pay not less than 25 cents an hour. This rate will advance to 30 cents in October next, and to 40 cents 6 years thereafter.

Under the Walsh-Healey Act employers are required to pay the rate which the Secretary of Labor determines to be the "prevailing minimum wage" for the industry of which the employer is a member. Thus far rates have been determined for some 30 different industries, large and small. The lowest rate thus far established is 314 cents an hour; the highest is 671⁄2 cents. In at least half of these 30 determinations, minimum rates have been established at levels above 40 cents an hour, the highest possible rate under the Fair Labor Standards Act.

The two statutes are equally dissimilar in the methods or formulas provided for determination of minimum rates. Members of this committee are certainly familiar with these differences, and I will not consume your time except to make this distinction. Under the Fair Labor Standards Act, rates other than the fixed minima can be established only as recommended by industry committees, and in recommending such rates, these committees are bound by statute not to recommend a rate which will give a competitive advantage to any group within the industry. This safeguard is of vast importance, but it has no counterpart in the Walsh-Healey Act.

* *

Under that law the Secretary of Labor is authorized to ascertain the wage which she determines to be "* the prevailing minimum wages for persons employed on similar work or in the particular or similar industries or groups of industries currently operating in the locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract;". In the determination of a "prevailing minimum wage," it should be noted that four distinct standards are provided in the section of the act previously quoted to guide the Secretary of Labor. In ascertaining the prevailing minimum wage, the Secretary may consider the minimum prevailing among:

1. Persons employed in similar work.

2. Persons employed in the particular industries.

3. Persons employed in similar industries.

4. Persons employed in groups of industries currently operating in the locality in which the materials, supplies, articles, or equipment are to be manufactured or furnished under said contract.

The nature of these alternative standards, and the extent of the discretion vested in the Secretary of Labor in utilizing such standards, was disclosed in the order of the Secretary prescribing the prevailing minimum wage for the men's work clothing industry:

"Concededly section 1 (b) establishes four distinct and separate standards for the guidance of the Secretary of Labor in arriving at a determination of minimum wages. No indication is given as to which of these standards should be followed by the Secretary in any given situation or class of situations. It is hence the conviction of the Solicitor that the effect of this language is to vest the Secretary with discretion to utilize any one, any combination, or all of these standards for the purpose of arriving at the minimum wage for a particular contract or class of contracts. The only limitation on that discretion is to preclude the Secretary from adopting other standards than those provided."

The Secretary, by utilizing "any one, any combination, or all of these standards for the purpose of arriving at the minimum wage" can compound these standards and broaden the latitude of the act to 15 standards for purposes of determining what wages must be paid to those workers employed by contractors with the United States. This becomes particularly significant when the extremely wide authority of the Secretary to fix wages under the act is considered.

In theory the Secretary merely "finds" or "ascertains” an existing rate which is the prevailing minimum. In effect, however, her determination is in most cases the establishment of a new minimum-wage rate for an indeterminate number of employers; and in fixing such rates she is not required by law to give any consideration whatever to the effect such rate may have on competition for public contracts or commercial orders. This ambiguous language of the present law, conferring unlimited discretion, is extremely unfortunate, may lead to serious dislocations, and should be corrected. Why did Congress so carefully circumscribe the authority of the Administrator of the Fair Labor Standards Act in the promulgation of minimum-wage orders and establish an absolute miximum of 40 cents, and at the same time continue the authority of the Secretary of Labor to establish minimum rates without any maximum limit or restriction on the exercise of her broad discretion? The answer seems obvious. So far as the record shows, there was no discussion whatever of the conflicting provisions of the Walsh-Healey Act at the time the Fair Labor Standards Act was enacted.

HOURS OF SERVICE

The Fair Labor Standards Act now requires a 44-hour week. This will be reduced to 42 hours in October next and then to 40 hours in 1940. This law contains no limitation on hours of employment during a single day.

The Walsh-Healey Act requires an 8-hour day and a 40-hour week.

Under the Fair Labor Standards Act overtime compensation must be paid for all hours over 44 in a single week. Under the Walsh-Healey Act, overtime must be paid for hours in excess of 8 hours per day or 40 a week.

Under the Fair Labor Standards Act, overtime compensation must be paid at the rate of time and a half "the regular rate," construed in the normal case to mean the rate arrived at by dividing total weekly compensation by total hours worked. Under the Walsh-Healey Act overtime must be compensated at time and a half the "base rate" received by the employee. While this difference may seem trivial, the distinction is of considerable importance.

EMPLOYEES AFFECTED

The wage-hour law applies to every employee engaged in the production of goods for commerce. The Walsh-Healey Act applies to any employee engaged in the manufacture or furnishing of the supplies required under the contract. The wage and hour standards of the Walsh-Healey Act do not apply to numerous classes of employees or occupations, but most of these excluded are covered by the Fair Labor Standards Act. This is true, for example, of the following: 1. Research workers.

2. Outside crews.

3. Service and repair men.

4. Office or clerical employees.

5. Custodial employees (electricians, engineers, firemen, repair-shop crews, watchmen, and maintenance men).

The coverage of the two statutes is likewise dissimilar by virtue of the specific exemptions authorized. For example, employees in retail or service establishments are exempt from the wage-hour law. Employees of retail establish